To the Shareholders and Management of Companhia de Saneamento Básico do Estado de São Paulo - SABESP São Paulo - SP

1. We have audited the accompanying balance sheets of Companhia de Saneamento Básico do Estado de São Paulo - SABESP (the “Company”) as of December 31, 2005 and 2004, and the related statements of income, changes in shareholders’ equity, and changes in financial position for the years then ended, all expressed in Brazilian reais and prepared under the responsibility of Company’s management. Our responsibility is to express an opinion on these financial statements.

2. Our audits were conducted in accordance with auditing standards in Brazil and comprised: (a) planning of the work, taking into consideration the significance of the balances, volume of transactions, and the accounting and internal control systems of the Company, (b) checking, on a test basis, the evidence and records that support the amounts and accounting information disclosed, and (c) evaluating the significant accounting practices and estimates adopted by management, as well as the presentation of the financial statements taken as a whole.

3. In our opinion, the financial statements referred to in paragraph 1 present fairly, in all material respects, the financial position of Companhia de Saneamento Básico do Estado de São Paulo - SABESP as of December 31, 2005 and 2004, and the results of its operations, the changes in shareholders’ equity, and the changes in its financial position for the years then ended in conformity with Brazilian accounting practices.

4. The supplementary information for the years ended December 31, 2005 and 2004, consisting of the statements of cash flows included in Note 24 and the financial statements in constant purchasing power, prepared in accordance with the criteria described in Note 25, item (a), and the statement of value added included in Note 25, item (b), are presented for purposes of additional analysis and are not a required part of the basic financial statements. This supplementary information has been subject to the auditing procedures mentioned in paragraph 2 and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole.

5. As mentioned in Note 6, the Company is negotiating with the State of São Paulo Government the reimbursement of the amounts for supplementary retirement and pension paid by the Company and the future flow of these payments to be reimbursed by the State of São Paulo Government. Due to the present stage of the negotiations between the Company and the State of São Paulo Government, it is not possible to determine the amount to be effectively reimbursed.

6. The accompanying financial statements have been translated into English for the convenience of readers outside Brazil.

São Paulo, March 23, 2006

DELOITTE TOUCHE TOHMATSU	Marco Antonio Brandão Simurro
Auditores Independentes	Engagement Partner
CRC nº 2 SP 011609/O-8	CRC nº 1 RJ 052000/O-0 “S” SP